So you are de-cluttering and you have tax returns from 2007, 2006, etc. taking up space over in a filing cabinet taunting you, “Shreeeeed meeeee, shreeeeed meeeee….” Ok, maybe not, but you may be thinking, “Can I get rid of those?”
I get this question quite frequently and it is no wonder people keep asking me this question. There is no solid rule you can apply to everything so it can be confusing. Many people think of the ol’ three year period of limitation rule for tax returns and can be true but it is not always the case. Also, some documents related to returns you need to keep for a very long period of time. Some you don’t need to keep at all. But for now let’s take a look at how long to keep tax returns.
Three years: Normally the IRS has three years to audit or make an ass es s m e nt on your return. That three years starts on the tax return deadline or when yo u ac t ua lly file a valid return. The date of filing is the postmark if filed timely or when physically delivered if not timely. So if you are one of those that go to post office at midnight on April 15 th. it’s the “timely mailing/timely filing” rule that m akes that work. I f you want to shred your 2008 return that w as filed March 2, 2009, don’t have a tax return shredding party on March 2, 2012. And that’s not just because its a horrible idea for a party. It’s beca use the three year period started on the tax filing deadline (in April), not the actual date it was filed since it was filed early. But if y our return was filed on July 5 th 2009 under extension to October, the clock starts on July 5 th. not in October. But as far as those 2006 and 2007 tax returns, could you shred them? Maybe, but you may not want to because:
Six years. If there is a big mistake on your return, the statute of limitations could be as much as six years. There is a benchmark to cross for this: you have to omit 25% of gross income as stated on the return. What is included and
what isn’t in what is used to calculate 25% can be debatable. Bottom line is, if you think there might be an issue with your tax return, best to keep it for more than three years.
Unlimited. So you haven’t filed since 2000. You think you will owe a lot for those early years. Should you have a party because those years are too long ago and beyond the IRS’s reach? Nope. A stopwatch doesn’t run if you don’t start it – unless it is broken and really creepy. But anyway, you have to start the limitation period with a valid return. Also, if you file a fraudulent return or willfully try to evade tax, there again can be an unlimited amount time the IRS can issue an assessment.
Ohio. The Ohio Department of Taxation recommends keeping your returns for four years. Same principle applies here regarding from date filed as mentioned above.
Ohio Cities. The Ohio Revised Code for cities is somewhat similar to the IRS. They have a three year limit on civil actions to collect or prosecute and possibly six years to pursue legal action in other situations. The 25% rule is mentioned here too. So definitely keep your city returns for at least these periods.
Things can get complicated if you have worthless securities (7 years) or loss carrybacks. So it is best to get specific advice from a CPA for your specific situation. But if you have a very simple return from 2000, you shouldn’t have too much to worry about regarding the IRS. However, your tax returns are useful for many other things. It can help prove income for that year, how much you paid for investments, residency, and many other things. The better option over shredding is to digitize those files if you are trying to de-clutter. Then you can keep that useful information, and then you can fill that filing cabinet with useful things, like dust bunnies, balls of twisty ties, and rubber bands.
Lose your return? Need to know what was on it? You can get a transcript from the IRS: Transcript Info. Need an actual copy? You can order copies as well (fee may apply): Ordering a Copy Info. If I prepared your return, please contact me, because I keep records for a long time. And be more careful next time!